Question

Oliver, age 40 is divorced. He is the manager of a small utility company where his salary is $58,000. Oliver's only other income was $2,000 in qualified dividends from some corporate stock he owns, a $10,000 inheritance from his aunt, and a lump sum of $20,000 in life insurance death proceeds from a policy on Oliver's aunt of which he was the beneficiary. If Oliver is in the 15% marginal tax bracket, what percentage will be applied to his qualified dividends to determine the federal income tax on those dividends?

a) 28% b) 0% c) 20% d) 15%

Answer 1

b) 0%

As Oliver is in the 15% marginal tax bracket the percentage will be applied to his qualified dividends to determine the federal income tax on those dividends is 0% as individuals tax payers who fall in 10-15% marginal tax rate bracket are exempt from tax. Individual who fall in the tax bracket of 25%, 28%, 33% and 35% marginal tax rate bracket pay at 15% to determine the federal income tax on qualified dividend and the individual tax payers who fall in above these marginal tax rate bracket which are stated above pay at 20% to determine the federal income tax on qualified dividend.The maximum tax rate for qualified dividend is 20%.

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